Is SolarCity Corporation (NASDAQ:SCTY) a $100 Stock?

By Gaurav S. Iyer, IFC Published : October 1, 2015

SolarCity Corporation is Leading an Energy Revolution

SolarCity Corporation (NASDAQ:SCTY) is growing up. The company’s share price has suffered enormously in the past 12 months thanks to falling oil prices, hurting the outlook for solar energy. But SolarCity stock has the long-term forces working in its favor.

The energy revolution is a foregone conclusion. Fossil fuels are in limited supply and alternative fuels must, at the very least, supplement our energy output. Few people disagree with that statement.

But when and how the energy revolution takes place is uncertain.

I think it’s already begun. When SolarCity stock premiered on the NASDAQ exchange as SCTY in late 2012, it had already been in operation for over half a decade.

Not to mention the market for solar panels is growing rapidly as prices for photovoltaic cells (the technology underlying solar) continue to drop. We’re seeing a flood of competitors entering the green energy space, but there are two final obstacles.

Most people still assume that entrenched oil and gas interests are the long-term obstacles to a sharp rise in SolarCity’s stock price, but that’s outdated thinking. Let me explain.

Two Hurdles for SCTY Stock Price

SolarCity, or the solar industry as a whole, faces two big problems. One is that different companies sell solar panels in different ways. Some lease, some finance.

For their part, SolarCity offers both because they are an integrated provider, from the manufacturing of photovoltaic cells to the point of sale.

Diversity in business strategies isn’t necessarily a bad thing. In fact, a variety of options is great for customers, but we haven’t yet seen which business models work and which ones don’t.

Based on their current positioning, however, I’d say SolarCity has the upper hand. And don’t forget, that means enormous returns for anyone who owns SCTY stock.

The second problem is how to change people’s perception of solar energy. Even fans of alternative energy are prone to misconceptions about the industry. Many still think it takes an enormous upfront investment to get solar panels on their rooftops.

But that’s not necessarily true. In that way, the two problems facing SolarCity are connected. Customers aren’t knowledgeable about the costs of solar energy because the industry hasn’t settled around a business model.

The Tipping Point for SolarCity Stock

Customers can only share information by word-of-mouth when the value proposition is clear and simple. Imagine two neighbours chatting on a Sunday afternoon. (Source: Fortune, September 29, 2015.)

Joe: “Hey Bob, nice solar panels. Must have cost a fortune!”

Bob: “Not really, they came and installed them for free. I just pay them a monthly fee.”

Joe: “Really?! How expensive is it?”

Bob: “Less than my regular utilities bill, I’ll tell you that much.”

If you forget that the above conversation sounds like it’s from Pleasantville, it can illuminate something glorious about the solar industry. The popular notion of solar energy as luxury service for Hollywood types is just wrong!

Right now the cost of acquiring a new client costs more than production of the solar panel itself. People’s misconception about solar are so deeply entrenched that educating them is a necessary hurdle to cross.

But no amount of PR will accelerate the shift in mentality quite as much as word of mouth. Give enough people a great deal and sales will grow automatically. In turn, SolarCity stock will tear through the roof.

SCTY Stock Price is Trading at Discount

Just one year ago, SolarCity’s stock price hovered around $74.00. Then oil prices began to plummet because of oversupply concerns. The price rout for crude took nearly everyone by surprise, especially the energy industry.

Oil firms took massive hits in the low revenue environment, but so did SolarCity. Wall Street worried that cheaper rates for oil would undercut demand for alternative energy, but that’s no longer true.

The real battle for SolarCity and its peers is to shed the stigma around their business model. Solar is cheap, it’s environmentally friendly, and it gives individuals unprecedented control over their own energy supply.

When investors catch up with this reality, money that fled SCTY will rush back in. But they won’t find the same company they once abandoned. The firm will have grown significantly, so if it was worth $84.00 at its peak, what would it be worth now?

In truth, there are few boundaries for SolarCity’s stock price. Once the logic of its business model becomes apparent to customers, investors will get bullish on the stock again. SCTY’s stock price could very well push past its previous peak and even hit $100.00 a share.